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Under Medicare Part A and Part D, Medicare pays SNFs according to a prospective system, under which SNFs are paid a per diem amount to cover the costs associated with caring for each resident, including pharmacy services. The per diem is determined based on cost reports submitted by SNFs to Medicare. SNFs have one year from the end of the cost reporting period to pay providers, such as Omnicare. Relator alleged that, in connection with its contract negotiations with SNFs, Omnicare provided kickbacks to SNFs by not collecting Part A debt and offering PPDs so as to induce SNFs to refer Part D and Medicaid patients to Omnicare. The 5th Circuit found that Omnicare’s settlement negotiation and debt collection practices were intended to avoid confrontation with its SNF clients with which it was engaged in contract negotiations, and that there was no evidence that such practices were intended to induce referrals. The court noted in particular that there was no evidence that SNFs were made aware that they were getting special benefits with regard settlement negotiations or debt collection, or that such benefits were tied to Medicare and Medicaid referrals.

As for PPDs, the court recognized 1991 OIG-HHS guidance, which explained that “‘by definition, [PPDs] are designed to induce prompt payment, and thus do not appear to violate the [AKS].’” The court found that there was no evidence that Omnicare unlawfully offered PPDs to induce referrals—as opposed to the lawful purpose of inducing payment by SNFs. Additionally, where Omnicare granted PPDs despite late payment, the court determined there was a legitimate reason—for example, that the SNFs had offered additional consideration such as prompt payment of past-due accounts receivables, or that there was a billing dispute that otherwise prevented prompt payment.

Without evidence that Omnicare’s settlement negotiations, debt collection practices, or offered PPDs were designed to induce referrals, the Court held that there can be no AKS violation. The Fifth Circuit also affirmed the lower court’s dismissal of relator’s FCA claim that Omnicare had caused a SNF to submit factually false Part A cost reports because the SNF did not pay for the reported costs within required one year period. The dismissal of the Reverse FCA claim was similarly affirmed.